What is an Interchange Fee?

Every time you process a credit or debit card payment, you pay an interchange fee, sometimes called a swipe fee. Interchange fees are set by the card networks and typically represent about 80% of the total cost of processing card payments. All interchange fees are passed to the bank that issued the credit or debit card used in the transaction. For instance, if a customer uses a Chase Sapphire Preferred Card, then the interchange fees are collected by JP Morgan Chase Bank. Interchange fees pay for the points, miles, cash back and general rewards that we receive from using our credit cards. Interchange fees also represent significant source of revenue and profit for issuing banks.

Optimizing payments to lower these fees is essential for any merchant looking to enhance their margins. In this guide, you will learn what are interchange rates, the average interchange fee, and how to lower your costs.


The customer swipes their credit card with the merchant to make a purchase.

Acquiring Bank

The merchant sends the transaction to the acquiring bank who takes a cut.

Issuing Bank

The acquiring bank sends the transaction to the issuing bank who takes a cut.

Transaction Completes

The aquiring bank sends the completed transaction back to the merchant.


What is an Interchange Fee

As noted above, interchange fees are paid on every credit and debit card payment taken by any merchant and go to the issuing bank.

These fees cover the issuing bank’s costs of offering payment products to consumers and businesses, and also pay for rewards, fraud and risks borne by the bank.

But what is an interchange fee?

Firstly, banks and card networks control the price you pay. Expect a fixed fee plus a percentage of the total sale on most transactions. In 2021, U.S. merchants paid $138 billion in swipe fees, representing a 24% increase from 2020.

While a swipe fee is unavoidable if your business chooses to accept card payments, there are actions you can take to lower your costs. Comparing merchant service providers, harnessing the power of data via Optimized Payments, and finding the right pricing model can lower your costs.

Examples of Common Fees

Understanding what is an interchange fee provides a baseline understanding of why they exist. While rates change all the time, here is a look at the average credit card swipe fees from the four leading card networks:


1.4-3.25% for credit cards


1.5-3.25% for credit cards

American Express

2.3-3.5% for credit cards


1.55-2.5% for credit cards

Interchange Fee Rates

What is an interchange fee rate influenced by?

Card Network

Card networks always set rates. Visa and MasterCard are the primary players, processing 94% of all card-not-present (CNP) transactions and 83% of general-purpose credit cards.

Credit vs. Debit

Interchange fees for credit cards are always significantly higher than those for debit cards. The reasoning behind these higher rates is that credit card transactions are much riskier for issuers.
Debit cards are also less expensive due to regulations/caps imposed by the Durbin amendment.

Type of Card

Corporate purchasing cards, air miles cards, and rewards cards have higher fees because they cost banks more to maintain. Any added-perks cards will see additional costs passed onto merchants through swipe fees.

Data Compliance

The card networks publish compliance guidelines that dictate the data elements that must be sent in every authorization and settlement message to receive the best available interchange rate. Not sending required data or sending invalid data can cost merchants an incremental 1.45% on a transaction. You read this correctly…sending invalid data can cost an additional 145 basis points.

Type of Sale

Crime and fraud rates drive interchange rates because of the potential loss to the issuer. Rates are lower on card-present (CP) transactions than on online sales, which are card-not-present (CNP) transactions.

Merchant Category Code (MCC)

There are different interchange rates that apply to grocers, retailers, e-commerce merchants, non-profits, airlines, etc. These rates are driven by the MCC that is set by your merchant acquirer during the underwriting or onboarding process. The card networks offer incentive or lower rates to certain industries based on the networks strategic and competitive goals.

How Can I Lower Interchange Fees?

Credit card interchange rates weigh heavily on merchants. While they are a natural cost of doing business, you can implement actionable strategies to optimize your business infrastructure for low-cost swipe fees.

Leverage Your Data to Optimize
According to a recent survey conducted by Optimized Payments, 88% of large merchants use Microsoft Excel to analyze their payments data. Excel is an amazing tool for financial modeling and forecasting, but it is limited for analyzing large payments data sets.

Tremendous insights from payments data can be leveraged to drive millions in cost savings and improving authorization rates. Optimized Payments has built a scalable cloud platform that can consume billions of transactions to provide KPIs, benchmarks and actionable insights. For example, Optimized Payments’ analytics can help you optimize your interchange rates and identify least-cost routing strategies.

Check Your Merchant Category Code (MCC)

Your MCC influences swipe rates. Every merchant receives a code assigned by card brands based on the products/services they offer and their industry.

Double-check your MCC to ensure you are being charged the correct rate. You could also split your business into separate MCCs to route transactions more cost-efficiently if you have more than one line of business.

Limit Card Acceptance

Some cards cost more to process than others. Use your data to analyze which payment methods your customers favor. If less than 5% of your customers use a card with the highest rates, prohibiting said cards could help you reduce your costs. For instance, you can disable the acceptance of Visa credit cards and accept only Visa debit cards.

However, you must balance cost savings with fulfilling your customers’ needs.

Implement Address Verification Services (AVS)
AVS reduces fraud rates for CNP transactions, and has the added bonus of reducing Visa interchange fees. AVS automatically compares the billing zip code provided by the cardholder with the zip code held by the issuing bank (AVS can also validate the numeric value of a street address).

Visa and MasterCard provide global support for AVS, with Visa actively incentivizing merchants to use AVS solutions through lower swipe fees.

Settle Transactions Daily
Is your business settling its transactions daily? If not, you could be paying a higher interchange fees. Retail merchants must settle their transactions at the end of day and e-commerce merchants must settle when they ship product. This involves submitting a file that includes all the card transactions processed that day to the payment processor for settlement.

E-commerce merchants have additional complexity because an authorization is typically valid for 7 to 30 days (7 days for MasterCard and 30 days for Visa). If the time between authorization and settlement exceeds this range, the best practice is to reverse the original authorization and obtain a new authorization.

Initiating the clearing call for a transaction within the allowed timeframe between authorization and settlement qualifies merchants for the lowest interchange rates.

Submit Level 3 Data
Providing Level 3 data (purchase line item detail) to issuing banks for eligible commercial cards helps transactions qualify for lower interchange fees.…sometimes reductions as much as 145 basis points. If you provide products or services to businesses, you are likely accepting significant number of commercial credit cards. You should explore the total savings you can realize by submitting Level 3 data.

TheBottom Line

Navigating the rising cost of swipe fees is challenging, with many businesses accepting it as a reality. With interchange optimization and appropriate routing, you can shave millions off your annual expenses.

Take advantage of Optimized Payments’ proprietary analytics platform and professional payment consulting services to leverage the data you already have. We have helped some of the biggest household names save millions, including Apple, Charter Communications, and Verizon.

Request your free demo to discover how you can become the hero of payments at your organization.

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